UK borrowing costs spiked yesterday as Andy Burnham’s by-election victory raised fears of a lurch to the Left that could further weaken Britain’s deteriorating public finances.

Yields on ten-year government bonds, known as gilts, climbed from 4.76 per cent to around 4.85 per cent. Bond yields rise when their prices fall.

Experts fear yields will climb further amid pressure to spend even more money and rewrite budget rules during what could become a chaotic leadership scramble.

It came as latest grim data showed UK borrowing – the gap between tax revenues and government spending – soared to £23.3billion last month, £5.4billion higher than a year earlier and smashing past official forecasts.

It was partly due to a surge in the interest payments on government debt to £11.7billion – the highest on record for May. Spending on public services and benefits also jumped.

The Treasury raked in £6.9billion more in taxes than last year, but spending grew even more quickly, resulting in a widening deficit.

And borrowing for April and May combined – the first two months of the financial year – stood at £46.3billion, £8.9billion more than last year.

It was also £7.7billion higher than predicted by the Office for Budget Responsibility (OBR) at the time of the Budget in March.

The figures underline the tight spending constraints that Burnham will face should he succeed Keir Starmer to the premiership.

Yesterday’s move in gilt markets was not only caused by the latest political drama. Bond yields were also rising across Europe – as cracks appeared in hopes for peace in the Middle East.

But Rob Wood, chief UK economist, said Burnham’s victory was ‘likely to add to pressure on yields’ already facing jitters thanks to Britain’s ballooning borrowing.

Wood said yields were likely to rise further as the newly-elected MP looks set to be heading for Number 10.

‘Tax-funded spending increases look likely, as does marginal loosening of the fiscal rules,’ he said.

Those rules commit the government to bringing down debt and borrowing. But that ties ministers’ hands on spending if the OBR judges that the rules are getting closer to being missed.

Burnham will come under pressure to spend more, particularly on defence, as well as public services. And backbench Labour MPs will recoil at measures to curb Britain’s gigantic benefits bill to try to balance the books.

‘We see a high risk that he would consider a change to the fiscal rules, despite appearing to rule this out in recent weeks,’ said Allan Monks, chief UK economist at JP Morgan.

Neil Wilson, investor strategist at Saxo UK, said markets were ‘already worrying about the result from Makerfield’ where Burnham won his parliamentary seat yesterday.

He said that was due to ‘the uncertainty that naturally surrounds a leadership race’ and ‘more importantly, a likely crowning of Burnham as PM and leftwards lurch by the government as he is widely seen as the least market friendly option’.

Wilson added: ‘The risk is populist, expensive promises that spike gilt yields. Burnham is a shrewd operator and will seek to avoid this but his electoral strength lies in building castles in the sky.’